Communications chips maker Qorvo (NASDAQ: QRVO) announced better-than-expected results in the Q4 FY2023 quarter, with revenue down 45.7% year on year to $632.7 million. However, guidance for the next quarter was less impressive, coming in at $640 million at the midpoint, being 1.72% below analyst estimates. Qorvo made a GAAP loss of $138.4 million, down on its profit of $212.3 million, in the same quarter last year.
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Qorvo (QRVO) Q4 FY2023 Highlights:
- Revenue: $632.7 million vs analyst estimates of $621.4 million (1.83% beat)
- EPS (non-GAAP): $0.26 vs analyst estimates of $0.13 ($0.13 beat)
- Revenue guidance for Q1 2024 is $640 million at the midpoint, below analyst estimates of $651.2 million
- Free cash flow of $31.3 million, down 84.6% from previous quarter
- Inventory Days Outstanding: 140, down from 165 previous quarter
- Gross Margin (GAAP): 18.1%, down from 49.2% same quarter last year
Bob Bruggeworth, president and chief executive officer of Qorvo, said, “Qorvo is operating well and investing in technology and product leadership to broaden our market exposure and drive growth. We are seeing increasing strength in customer design activity across our businesses, and we expect improved financial performance supported by content gains in large customer programs.”
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.
Qorvo's revenue growth over the last three years has been unimpressive, averaging 5.95% annually. Last year the quarterly revenue declined from $1.17 billion to $632.7 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Despite Qorvo revenues beating analyst estimates, this was still a slow quarter with a 45.7% revenue decline.
Qorvo's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 38.2% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to stay flat.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.
This quarter, Qorvo’s inventory days came in at 140, 36 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.
Key Takeaways from Qorvo's Q4 Results
With a market capitalization of $9.33 billion Qorvo is among smaller companies, but its more than $808.8 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
We were very impressed by the strong improvements in Qorvo’s inventory levels. And we were also excited to see that earnings outperformed Wall St’s expectations. On the other hand, it was less good to see that was in decline and and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Qorvo. The company is up 6.99% on the results and currently trades at $100.11 per share.
Qorvo may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.